Myriad IRS Issues



As everyone who pays ANY attention to the news is well aware, the IRS is experiencing a lot a bad press these days. In this column I’d like to review some of what I perceive as significant issues.

Of course, the problem with Lois Lerner, who has stiffed Congress by invoking her Fifth Amendment rights (even though some legal scholars suggest that she had no right to do so because she first insisted, in a statement made during her Congressional hearing, that she was innocent) remains in the news. There seems a good likelihood that she will be brought up on contempt charges. What is appalling to me is that ANY of our bureaucratic employees even think they can get away with that. Yet Congress has dithered away well over a year and we are (at this writing) no closer to getting at the facts than we were all these many months ago. Without question, the morale of IRS employees has suffered as much of the American public tries to understand what happened and why. The Country deserves to know if the IRS has been duplicitous in using its power for political purposes. It is certainly my hope that the truth will come out eventually.

Recently the news has contained several reports about bonuses awarded by IRS to its employees between October 2010 and December 2012. Some 1,150 received bonuses even though they owed back taxes. A total of 2,800 employees received bonuses even though they had faced disciplinary action in the previous year. Some of the employee misconduct included misuse of government credit cards for travel, drug use, violent threats, and fraudulently claiming unemployment benefits. The IRS states that it did not issue any awards to “executives” who were subject to disciplinary actions. To me this is small comfort. How can our government expect its citizens to comply with the nation’s “voluntary” tax system when we become aware of such unacceptable activities by the employees of the IRS? Interestingly, while tax delinquency among the public at large is 8.2%, it is ONLY 3.2% among all federal workers and a MERE 1.1% among IRS employees. Who the heck is watching the watchers?

Quoting Sen. Claire McCaskill of MO, who is sponsoring a bill to prohibit bonuses under these circumstances, “The notion that taxpayer dollars would be used to pay cash bonuses to employees who’ve engaged in conduct that could get them fired or sent to jail is outrageous and our bill would put an end to that.” Properly, this bill would require that employees who received such bonuses must repay them. It’s a start, but how did the IRS manage to get so wrong-headed in the first place? Unfortunately, it seems that many federal agencies experience similar failings. 

It seems totally unacceptable that ANY percentage of government employees should be delinquent on their taxes. Can’t the government figure out how to hold our public servants accountable? After all, it would be pretty simple to just garnishee a certain amount for their paychecks until they are no longer delinquent.

A recent article I came across suggests that the U. S. now ranks 94th out of 100 tax systems. Our system is just plain NOT competitive. Many corporations seem to take unfair advantage of the system. We have all heard the charge that mega corporations with multi-billion dollar after-tax profits pay little or nothing in taxes. Yet they claim that they are not at fault, but that our tax system is the problem. This is hard to dispute because these tax-avoiders are simply using the tax law, enacted by our representatives in Washington who are not able to wean themselves from the advantages they gain, personally, by making sure their favorite industries continue to get tax breaks that you and I will never be able to use.

Yesterday I had a problem with my tax preparation program that required me to phone their help line. At this time of year there should have been virtually no wait time. However, I had to wait on hold for almost a half hour before I was able to speak with a tech. When I inquired as to why there was a long wait time a month after filing season (April 15th) had passed, I was informed that they had seen no letup because of the large volume of amended returns that were being filed. IRS has been quoted as indicating that they expect nearly five million amended returns to be filed this year. Two primary reasons have been cited. First, same-sex married couples are required to file as married – either married filing jointly or married filing separately. They are NOT permitted to file as single or head-of-household – the same rules that apply to traditional married couples. Secondly, as of April 18, 2014, nearly 46 million returns were filed electronically from home computers. Those of us who prepare tax returns for a living frequently see self-prepared returns that are shot full of problems. As often as not, when people prepare their own returns (unless the return is of the most simple variety) they end up paying more in taxes than would be required because they are not aware of the tax laws that could save them tax dollars. Congress passes many laws that are designed to help small businesses. All too often these laws are hidden in the IRS tax code. Unless the preparer is up on all of these tax laws and how they can be applied to reduce taxes, it is not uncommon for the taxpayer to pay more taxes than are legally required.

One final item that deserves our attention is how the IRS will insure that it can detect health insurance premium tax fraud under the Affordable Care Act (Obamacare). According to J. Russell George, the Treasury Inspector General for Tax Administration (TIGTA), the necessary systems to insure compliance are still in the planning stages. “Until these new systems are successfully developed and tested, TIGTA remains concerned that the IRS’s existing fraud detection system may not be capable of identifying Affordable Care Act refund fraud or schemes prior to the issuance of tax refunds.” Of course, those of us who need to keep up on such matters are well aware that the IRS regularly refunds BILLIONS of dollars each year in fraudulent refund claims in other areas, such as Earned Income Tax Credits and Child Credits.

There are many problems inherent in our current tax system. We can only hope that someday Washington law-makers come to their senses and do something appropriate regarding a change in how we extract taxes from us, the citizens. Don’t hold your breath!!

P. S. – The Kiplinger Tax Letter recently published updated information on individual IRS audit rates. For 2012 returns only 0.96% were audited. Of the 1.4 million audits, 1.06 million were correspondence audits (we have discussed these types of audit in previous columns). Face-to-face examinations, involving revenue agents, made up only 0.24% or 1 out of every 417 returns filed. For higher income earners, more than 5% of returns showing more than $1 million had such face-to-face audits and only 1.11% of those between $200,000 and $1 million were examined, or 1 in 519 returns filed.